If the price elasticity of demand for aluminum foil is 1.45,then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by
A)1.66%,and aluminum foil sellers' total revenue will increase as a result.
B)1.66%,and aluminum foil sellers' total revenue will decrease as a result.
C)3.48%,and aluminum foil sellers' total revenue will increase as a result.
D)3.48%,and aluminum foil sellers' total revenue will decrease as a result.

Question

Quizplus · Accepted Answer

Using the formula for calculating the percentage change in quantity demanded:

% change in quantity demanded = Price elasticity of demand × % change in price

We can plug in the given values:

1.45 = (% change in quantity demanded) / (-2.4%)

Solving for % change in quantity demanded:

% change in quantity demanded = 1.45 × (-2.4%) = -3.48%

This means that a 2.4% decrease in the price of aluminum foil will result in a 3.48% increase in the quantity demanded of aluminum foil.

Since the price cut will result in more sales, the total revenue of aluminum foil sellers will increase. Therefore, the correct answer is C.

If the Price Elasticity of Demand for Aluminum Foil Is